Himachal Pradesh High Court
H.P. Power Corporation Limited ... vs M/S Hindustan Construction Company ... on 19 October, 2023
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Arb. Case No.117 of 2018 Reserved on: 28.09.2023 Date of Decision: 19.10.2023 .
H.P. Power Corporation Limited ....Objector/petitioner Versus M/s Hindustan Construction Company Limited ...Claimant/Respondent.
Coram of Hon'ble Mr. Justice Rakesh Kainthla, Judge.
Whether approved for reporting?1 Yes rt For the Petitioner : Dr. Lalit K. Sharma, Advocate.
For the Respondent : Mr. Janesh Gupta, Advocate.
Rakesh Kainthla, Judge The present objections are filed against the award dated 19.09.2018 passed by the learned Arbitral Tribunal with a prayer to set aside and quash the same. (Parties shall hereinafter referred to in the same manner as they were arrayed before the learned Arbitral Tribunal for convenience).
2. Briefly stated, the facts giving rise to the present objections are that the respondent-Himachal Pradesh Power Corporation Limited (hereinafter referred to as HPPCL) had awarded an Engineering Procurement and Construction (EPC) 1 Whether reporters of Local Papers may be allowed to see the judgment? Yes.
::: Downloaded on - 20/10/2023 20:36:49 :::CIS 2contract for 100 MW Sainj Hydroelectric Project (Civil and Hydro Mechanical works) located in Kullu District of Himachal Pradesh vide letter of Award dated 23.06.2010 to the claimant-M/s .
Hindustan Construction Company Limited. All the project works were to be completed in 48 months. Differences arose between the parties during the execution of the work. The respondent instructed the claimant to carry out the works of permeation of grouting under the Barrage Base. The claimant clarified that permeation grouting was not required to be executed as per the rt detailed investigation and as per the requirements of the respondent under the contract. The respondent claimed that the work was necessary for the safety of the project. The claimant carried out the work and demanded the payment for the same.
The respondent refused claiming that this was part of the contract. The matter was referred to the Dispute Adjudication Board ( in short DAB), which delivered its decision on 29.06.2016 by majority. This decision did not satisfy the party;
hence, the matter was referred to an Arbitral Tribunal.
3. The statement of claim was filed by the claimant asserting that the claimant has completed the substantial work.
The reservoir filling was completed and commissioning activities of the project were in progress. The claimant was ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 3 directed by the respondent to carry out the works of permeation grouting under the barrage base and the claimant had clarified that permeation grouting was not required as per the .
conclusions drawn from detailed investigations and engineering carried out as per the requirements of the employer's contract.
The claimant also notified that in case, the grouting works were required to be executed, the said work would constitute a of variation under the terms and conditions of the Contract. The respondent denied that there was any variation. The decision of rt DAB was agreeable to the claimant provided that the payment was made within one month. However, the respondent did not make the payment and invoked the arbitration clause. The claimant had prepared the technical bid by relying upon the interpretation of various data/information provided in bidding documents and site investigations. The claimant had proposed sequencing of various activities and its methodology. This bid was accepted by the respondent. The employer's requirement stated that a barrage base was proposed on permeable strata on river Sainj. The design of the barrage foundation was made as per the requirements of the respondent. The design and drawing were accepted by the respondents. The claimant commenced the execution of the barrage work but it was told to carry out ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 4 liquefaction studies. The claimant submitted a report of such study to the respondent. The study concluded that the barrage foundation was free from liquefaction. The respondent .
instructed the claimant to carry out a study for suffusion assessment under the barrage. The phenomenon of suffusion was nowhere referred to or provided in the contract document nor it was codified in any Indian or International Codes. The of respondent instructed the claimant to drill two boreholes initially, which were enhanced to 5 bores subsequently. The rt claimant complied with the instructions and the design was free from the possibility of liquefaction and suffusion as per the report. No permeation grouting was required. The respondent instructed the claimant to carry out the permeation grouting and the claimant told the respondent that this work was beyond the scope of the work awarded to it and it will be an additional work. The claimant also took up the matter with IIT, Bombay to understand the phenomena and real need of permeation grouting. Professor D.N. Singh of IIT Bombay also opined that suffusion below the foundation of the barrage was not a possibility. Clarifications were sought by the respondent, which were duly supplied. The respondent instructed the claimant to carry out the permeation grouting which was done to the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 5 satisfaction of the respondent. The payment was not made, hence, the statement of the claimant was filed seeking the award that permeation grouting was an additional work/variation .
under the contract and the respondent was liable to pay the compensation of ₹9.01 crores + interest for such work along with the future interest.
4. The respondent filed a statement of defence of asserting that the claimant carried out the design of the barrage structure resting on the permeable foundation and submitted rt the design. The design was finalized. The hydraulic behaviour of the barrage and intake was vetted through physical model studies carried out by the Irrigation and Power Research Institute, Amritsar. 14 drill holes were drilled in different phases in the pre-construction stage. Boreholes indicated the presence of ± 5-meters thick sand layer below 16.5 meters from the bed with decreasing thickness towards downstream. No such layer was encountered. In the rest of the layers, standard penetration tests and permeability tests were conducted. Senior Geologist-
Sh. Manoj Kumar suggested drilling more holes for further studies. During the construction stage, Project Consultancy Firm-M/s Lahmeyer International India Limited (in short M/s LII) raised apprehension of internal erosion and recommended ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 6 drilling of five new boreholes for assessment of suffusion potential. 05 new boreholes were drilled during the construction of the project in June, 2012. The possibility of failure of the .
barrage foundation due to liquefaction was ruled out but the problem of suffusion (internal erosion) was established based on the gradation analysis of the new boreholes as per Burenkova 1993 Criteria. The consultant-M/s LII stated in its report that of 40% of samples tested with new boreholes turned out to be unstable according to Burenkova Criteria. Therefore, the risk of rt internal erosion was limited. A risk remained for the sand pockets and gap-graded fine to medium sand with boulders/cobbles and in areas with relatively inhomogeneous permeabilities, where the hydraulic gradient can be much more than estimated. M/s LII termed the situation marginally safe for shingles but the risk remained for gap-graded fine to medium sand within the matrix with cobbles, pebbles & boulders.
Therefore, the claimant was advised to provide a safeguard against the suffusion and both parties agreed to curtain grouting. The claimant is bound to provide the permeation grouting as per the terms and conditions of the agreement. The majority decision was contrary to the terms and conditions of the agreement and the dissenting member had rightly held it to ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 7 be within the scope of the work allotted to the claimant. The claimant owns responsibility for a safe design against any mode of failure during the construction of the project. The grout .
curtain cut-off was required to mitigate the problem of internal erosion (suffusion) to ensure the safety of the structure, therefore, it was prayed that the claim be rejected.
5. A rejoinder denying the contents of the statement of of defence and affirming those of the plaint of the statement of the claim was filed. rt
6. The learned Arbitral Tribunal framed the following points for determination:
i. In view of the above contract being EPC, what are the obligations of the claimant in providing a safe design of the barrage and its performance in achieving such benchmarks? This involves
a) Whether the design evolved and provided by the claimant and approved by the respondent for the barrage was as per standard guidelines prescribed in the contract?
b) Whether there have been any deviations other than the work after approval of the contract design?
c) Whether the technical paper/s on which Permeation Grouting was recommended form standard guidelines prescribed in the contract?
ii. Whether execution of works of Permeation Grouting is covered under the contract and hence not payable or it constitutes additional item or work and payable as Variation Item under the contract?
::: Downloaded on - 20/10/2023 20:36:49 :::CIS 8iii. If payable as Variation item to the claimant, quantification thereof.
7. The learned Arbitral Tribunal held that the initial direction of the respondent was limited to the assessment of .
liquefaction potential under the barrage foundation. The detailed designs of the barrage was approved on 24.07.2012 by the respondent knowing fully well that the matter regarding the suffusion was under investigation. The respondent agreed with of the revised report of the claimant dated 30.11.2011 after drilling 5 boreholes and the REMI Test, which ruled out the possibility of rt liquefaction and concluded that the barrage foundation was non-suffusive and safe against critical exit gradient. More investigations were conducted by taking additional boreholes.
The respondent found the risk of internal erosion to be limited but raised some observations on the report. The claimant also submitted a report that Barrage foundation was free from the possibility of suffusion. The construction of the barrage commenced only after carrying out the investigation model studies analysis of detailed design and engineering in terms of the guidelines and approval by the respondent. The respondent was shifting his stand on the test result. It stated initially that the foundation was not prone to liquefaction then changed its stand to a possibility of liquefaction and finally to suffusion.
::: Downloaded on - 20/10/2023 20:36:49 :::CIS 9Professor D.N. Singh of the Geology Department of IIT also stated that the rigid raft of the barrage would bridge over the micro-cavities formed, as sand was not a continuum stratum.
.
The requirements under the IS code were satisfied. The design was BIS Code compliant and as per Khosla Theory, which is trade practice. The Burenkova Theory could not be relied upon as it was not included in the relevant code and standard. The of instructions by the respondent was based upon the Burenkova Theory, which is beyond the codal stipulation. The claimant was rt bound to meet the standards under the BIS Code, which was satisfied in the present case. The reduction in the length of the barrage was made with mutual consent. The claimant submitted a design report in June 2011 and 2012 based upon the relevant provisions of IS:6966, as applicable and stipulated under the contract. This design report was approved and adopted by the respondent. There were several changes in the dimensions of the structure. The claimant provided the design as per the studies of the Irrigation and Power Research Institute, Amritsar.
The plea of the respondent that the claimant had changed the designs unilaterally was not acceptable. The safety was not compromised by the change in the designs and the objections of the respondent that the designs change was unapproved was not ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 10 acceptable. The claimant had made necessary modifications to the bore length etc. upon pointing out by the respondent. The geological data and sub-surface analysis during the bid stage .
formed part of the bid documents. Various reports from the Geological Survey of India based on the investigation carried out by the respondent till 2008-2009 showed the presence of ±5 meter thick sand layer between the depth of 16.5 meters and of 20.5 meters, which could prove vulnerable to piping and liquefaction. However, no report referred to the concept of rt suffusion and the plea of the respondent that this possibility should have been kept in mind while designing the project was not acceptable. The respondent corroborated the sufficiency/safety of the structure as per the prevalent practice of the BIS Code. Permeation grouting did not form part of the contract, the Indian standards/codes or the trade practices. The claimant was responsible for planning design, engineering and execution of entire civil and hydro-mechanical works as per the Bureau of Indian Standards. International Standards and Practices were to be followed in the absence of any of the parameters. The scope of the work was limited to those works, which could be inferred from bidding documents or provided in the contract. The possibility of suffusion was not specified under ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 11 the contract despite the availability of the result of geological investigations carried out by it for six years and investigations conducted by the claimant for three years. Permeation grouting .
did not form part of the contract or Indian Standard/Code or Trade Practices. Curtain grouting and permeation grouting were different and the plea of the respondent that they were the same was not acceptable. The permeation grouting was provided due of to the apprehension of M/s LII for the possibility of suffusion and overlookingrt the conclusion that the situation was marginally safe. The employer cannot compel the contractor to carry out any work, which is beyond the scope of the original work. The permeation grouting was provided as a remedial measure and constituted a variation. Learned Arbitral Tribunal awarded an amount of ₹5,26,59,318/- and interest of ₹77,60,714/- only. The amount was ordered to be paid within 90 days and in case of default, a simple interest @15% per annum was ordered to be paid from the date of the award until the date of actual payment.
8. Being aggrieved from the award passed by the learned Arbitral Tribunal, the present objection petition has been filed asserting that the award is contrary to the law and terms of the contract. It violates the fundamental principle of ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 12 public policy and substantive law of India. Learned Arbitral Tribunal did not consider the vital pleas and the pleadings of the objector. The proper reasons were not furnished and the award .
cannot be called to be a reasoned award. The Tribunal misconstrued the contract and ignored the basic plea of the safety of barrage urged by the respondent/objector. The contract was an EPC contract in which Engineering, procurement and of construction were the sole responsibility of the contractor.
Permeation grouting was related to safety and was covered rt under Clause 5.1 of the general condition of the contract. It could not be construed as an additional work/variation. The contractor was responsible for the safe design of the work. Learned Arbitral Tribunal erred in holding that the design was state of the art design. The design should have been safe and this was ensured by the permeation grouting. The conclusion of the DAB and learned Arbitral Tribunal vindicates the contention of the respondent regarding the presence of composite medium comprising Shingle and sand. The standard for the design of the barrage over composite medium does not exist under the Bureau of Indian standard; hence, it was necessary to rely upon the international standard of design of barrage. The learned Arbitral Tribunal went beyond the provision of Clause 5.1 and held that ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 13 the safety factor was within the range. Such a comparison was never envisaged under the contract. The claimant had reduced the length of the barrage and this compromised the safety. The .
factor of safety was four and the exit gradient was 0.24. This was safe where the average particle size corresponded to shingle but the presence of sand pocket enhanced the safety factor to 06 as opposed to 4-5 applicable to Shingle. There was a risk of of suffusion and it was necessary to carry out the permeation grouting to reduce the risk. Any work to ensure the safety fell rt within the scope of the work. The dissenting members of the DAB recognized this fact. Therefore, it was prayed that the award passed by the learned Arbitral Tribunal be set aside.
9. No reply was filed.
10. I have heard Dr. Lalit Kumar Sharma, learned counsel for the objector (respondent before the learned Arbitral Tribunal) and Mr. Janesh Gupta, learned counsel for the claimant.
11. Dr.Lalit Kumar Sharma, learned counsel for the objector submitted that the contract was an EPC contract. The claimant was required to design, procure and construct. The whole responsibility of safe design rested with the claimant. The claimant designed the project keeping in view the presence of ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 14 shingles on the riverbed. Subsequent drilling found the presence of sand particles, which pointed to the possibility of suffusion.
The whole safety of the project was compromised due to the .
detection of the sand particles. The claimant was directed to carry out the remedial measure by permeation grouting. This was within the scope of the work to ensure the safety of the project. Learned Arbitral Tribunal erred in holding that it was a of variation and an additional work. Learned Arbitral Tribunal also erred in awarding the interest over what was agreed in the rt contract. The award is against the public policy of India and contrary to the terms and conditions of the contract. The award does not contain adequate reasons; therefore, he prayed that the present objections be allowed and the award passed by the learned Arbitral Tribunal be set aside.
12. Mr. Janesh Gupta, learned counsel for the claimant supported the award passed by the learned Arbitral Tribunal. He submitted that the scope of interference with the award of the learned Tribunal is quite limited, if the learned Arbitral Tribunal had taken a view, which was a possible view, the Court would not substitute its view in place of the view of the learned Arbitral Tribunal. The learned Arbitral Tribunal consisted of the experts.
They had also taken the assistance of the experts and the award ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 15 contains detailed reasons for concluding that the permeation grouting was a variation and an additional work. The learned Tribunal had the authority under Section 31 to award the post-
.
award interest and there is nothing bad in the award. Hence, he prayed that the present objections be dismissed.
13. I have given considerable thought to the rival of submissions at the bar and have gone through the records carefully.
14. rt The scope of challenge to an arbitral award was considered by the Hon'ble Supreme Court of India in Reliance Infrastructure Vs. State of Goa 2023 SCC Online SC 604 and it was observed:-
"The scope of challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the Act
47. Having regard to the contentions urged and the issues raised, it shall also be apposite to take note of the principles enunciated by this Court in some of the relevant decisions cited by the parties on the scope of challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the Act of 1996.
48. In MMTC Limited (supra), this Court took note of various decisions including that in the case of Associate Builders (supra) and exposited on the limited scope of interference under Section 34 and further narrower scope of appeal under Section 37 of the Act of 1996, particularly when dealing with the concurrent findings (of the Arbitrator and then of the Court). This Court, inter alia, held as under:--::: Downloaded on - 20/10/2023 20:36:49 :::CIS 16
"11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through .
decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law"
of would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury rt [Associated Provincial Picture Houses v. Wednesbury Corpn., [1948] 1 K.B. 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204]. Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445]; and McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181]) ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 17
13. It is relevant to note that after the 2015 Amendment to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or .
corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality.
Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also of includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the grounds of an rt erroneous application of the law or by reappreciation of evidence.
14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."
49. In the case of Ssangyong Engineering (supra), this Court has set out the scope of challenge under Section 34 of the Act of 1996 in further detail in the following words:--
"37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 18 matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or the public interest, cannot be brought in by the backdoor when it comes to setting aside an .
award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
of
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], namely, a mere contravention of the substantive law of India, by itself, is no longer a rt ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204], however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], namely, that the construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], while no longer being a ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 19 ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the grounds of patent .
illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such a decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."
of
50. The limited scope of challenge under Section 34 of the Act was once again highlighted by this Court in the case of PSA SICAL Terminals (supra) and this Court particularly explained the relevant tests as under:--
rt "43. It will thus appear to be a more than settled legal position, that in an application under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of the "public policy of India", which has been held to mean "the fundamental policy of Indian law". A judicial intervention on account of interfering on the merits of the award would not be permissible.
However, the principles of natural justice as contained in Sections 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award. The ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said ground. An award would be set aside on the ground of patent illegality appearing on the face of the award and as such, which goes to the roots of the matter. However, an illegality with regard to a mere erroneous application of law would not be a ground for interference. Equally, reappreciation of ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 20 evidence would not be permissible on the grounds of patent illegality appearing on the face of the award.
44. A decision which is perverse, though would not be a ground for challenge under "public policy of India", would certainly amount to a patent illegality .
appearing on the face of the award. However, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the grounds of patent illegality.
45. To understand the test of perversity, it will also be appropriate to refer to paragraphs 31 and 32 from of the judgment of this Court in Associate Builders (supra), which read thus:
rt "31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at;
or(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum- Assessing Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was held : (SCC p. 317, para 7) "7. ... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."
51. In Delhi Airport Metro Express (supra), this Court again surveyed the case law and explained the contours of the Courts' power to review the arbitral awards. Therein, ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 21 this Court not only reaffirmed the principles aforesaid but also highlighted an area of serious concern while pointing out "a disturbing tendency" of the Courts in setting aside arbitral awards after dissecting and re-assessing factual aspects. This Court also underscored the pertinent features and scope of the expression "patent illegality"
.
while reiterating that the Courts do not sit in appeal over the arbitral award. The relevant and significant passages of this judgment could be usefully extracted as under:--
"26. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 of Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section
34. While deciding applications filed under Section 34 of the Act, Courts are mandated to strictly act in rt accordance with and within the confines of Section 34, refraining from appreciation or reappreciation of matters of fact as well as law. (See Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. [Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455 : (2020) 1 SCC (Civ) 570], Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd. [Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., (2022) 1 SCC 75] and Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306].) *********
28. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by Courts while examining the validity of the arbitral awards. The limited grounds available to Courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the Courts. There is a disturbing tendency of Courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 22 intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial .
interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions.
of
29. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression "patent illegality". Likewise, rt erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression "patent illegality". What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression "patent illegality".::: Downloaded on - 20/10/2023 20:36:49 :::CIS 23
30. Section 34(2)(b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject matter of the award or if the award is in conflict with the public policy of India, the award is liable to be set aside. Explanation (1), .
amended by the 2015 Amendment Act, clarified the expression "public policy of India" and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with the public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if of it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice.
rt *********
42. The Division Bench referred to various factors leading to the termination notice, to conclude that the award shocks the conscience of the court. The discussion in SCC OnLine Del para 103 of the impugned judgment [DMRC v. Delhi Airport Metro Express (P) Ltd., 2019 SCC OnLine Del 6562] amounts to appreciation or reappreciation of the facts which is not permissible under Section 34 of the 1996 Act. The Division Bench further held [DMRC v. Delhi Airport Metro Express (P) Ltd., 2019 SCC OnLine Del 6562] that the fact of AMEL being operated without any adverse event for a period of more than four years since the date of issuance of the CMRS certificate was not given due importance by the Arbitral Tribunal. As the arbitrator is the sole Judge of the quality as well as the quantity of the evidence, the task of being a Judge on the evidence before the Tribunal does not fall upon the Court in the exercise of its jurisdiction under Section
34. [State of Rajasthan v. Puri Construction Co. Ltd., (1994) 6 SCC 485] On the basis of the issues submitted by the parties, the Arbitral Tribunal framed issues for consideration and answered the said issues. Subsequent events need not be taken into account."
(emphasis supplied) ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 24
52. In the case of Haryana Tourism Ltd. (supra), this Court yet again pointed out the limited scope of interference under Sections 34 and 37 of the Act; and disapproved interference by the High Court under Section 37 of the Act while entering into merits of the claim in the following words:
.
"8. So far as the impugned judgment and order passed by the High Court quashing and setting aside the award and the order passed by the Additional District Judge under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an appeal under Section 37 of the Arbitration Act, the of High Court has entered into the merits of the claim, which is not permissible in exercise of powers under Section 37 of the Arbitration Act.
9. As per the settled position of law laid down by rt this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial Court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order passed by the High Court is hence not sustainable."
53. As regards the limited scope of interference under Sections 34/37 of the Act, we may also usefully refer to the following observations of a 3-Judge Bench of this Court in the case of UHL Power Company Limited v. State of Himachal Pradesh, (2022) 4 SCC 116:--
"15. This Court also accepts as correct, the view expressed by the appellate court that the learned Single Judge committed a gross error in reappreciating ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 25 the findings returned by the Arbitral Tribunal and taking an entirely different view in respect of the interpretation of the relevant clauses of the implementation agreement governing the parties inasmuch as it was not open to the said court to do so in proceedings under Section 34 of the Arbitration Act, .
by virtually acting as a court of appeal.
16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or of refusing to set aside an award, is all the more circumscribed."
54. The learned Attorney General has referred to another 3-Judge Bench decision of this Court in the case rt of Sal Udyog Private Limited (supra), wherein this Court indeed interfered with the award in question when the same was found suffering from non-consideration of a relevant contractual clause. In the said decision too, the principles aforesaid in Delhi Airport Metro Express, Ssangyong Engineering and other cases were referred to and thereafter, this Court applied the principles to the facts of that case. We shall refer to the said decision later at an appropriate juncture."
15. Similar is the judgment in Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd., 2023 SCC OnLine SC 1208, wherein it was held:
"34. Sub-section (1) to Section 34 of the A&C Act requires that the recourse to a court against an arbitral award is to be made by a party filing an application for setting aside of an award in accordance with sub-sections (2) and (3) of Section 34. Sub-section (2) to Section 34 of the A&C Act stipulates seven grounds on which a court may set aside an arbitral award. Sub-section (2) consists of two clauses,
(a) and (b). Clause (b) consists of two sub-clauses, namely, sub-clause (i) which states that when the subject matter of the dispute is not capable of settlement by ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 26 arbitration under the law for the time being in force, and sub-clause (ii), which states that the court can set aside an arbitral award when the award is 'in conflict with public policy of India'. We shall subsequently examine the decisions of this Court interpreting 'in conflict with public policy of India' and the explanation.
.
35. Under sub-clause (a) to sub-section (2) to Section 34 of the A&C Act, a court can set aside an award on the grounds in sub-clauses (i) to (v) namely, when a party being under some incapacity; arbitration agreement is not valid under the law for the time being in force; when the party making an application under Section 34 is not of given a proper notice of appointment of the arbitrator or the arbitration proceedings or was unable to present its case; and when the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the rt agreement between the parties, unless such agreement was in conflict with the mandatory and binding non-
derogable provision, or was not in accordance with Part I of the A&C Act. Sub-clause (iv) states that the arbitral award can be set aside when it deals with a dispute not contemplated by, or not falling within the terms of submission of arbitration, or it contains a decision on matters beyond the scope of submission to arbitration. However, the proviso states that the decision in the matters submitted to arbitration can be separated from those not submitted, then that part of the arbitral award which contains the decision on the matter not submitted to arbitration can be set aside. In the present case, we are not required to examine sub-clauses to clause (a) to sub-
section (2) to Section 34 of the A&C Act in detail. Hence, this decision should not be read as making any observation, even as obiter dicta on the said clauses.
36. Explanation to sub-clause (ii) to clause (b) to Section 34(2) of the A&C Act, as quoted above and before its substitution by Act No. 3 of 2016, had postulated and declared for avoidance of doubt that an award is 'in conflict with the public policy of India', if the making of the award is induced or affected by fraud or corruption, or was in violation of Sections 75 or 81 of the A&C Act. Both Sections 75 and 81 of the A&C Act fall under Part III of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 27 A&C Act, which deals with conciliation proceedings. Section 75 of the A&C Act relates to confidentiality of the settlement proceedings and Section 81 deals with admissibility of evidence in conciliation proceedings. Suffice it is to note at this stage that while 'fraud' and 'corruption' are two specific grounds under 'public .
policy', these are not the sole and only grounds on which an award can be set aside on the grounds of 'public policy'.
37. Act No. 3 of 2016 with retrospective effect from 23.10.2015 has substituted the explanation referred to above, by two new explanations that are differently of worded.25 Sub-section (2-A) to Section 34 of the A&C Act, which was instituted by Act No. 3 of 2016 with retrospective effect from 23.10.2015, states that the arbitral award arising out of arbitrations other than rt international commercial arbitrations can be set aside by the court if it is vitiated by patent illegality appearing on the face of the award. The proviso to sub-section (2-A) to Section 34 of the A&C Act also states that the award shall not be set aside merely on the grounds of erroneous application of law or by reappreciation of evidence. The aforesaid sub-section need not be examined in the facts of the present case, as we are not required to interpret and apply the substituted explanations to (ii) to sub-
clause (b) to 34(2) of the A & C Act in the present case.
38. The expression 'public policy' under Section 34 of the A&C Act is capable of both wide and narrow interpretation. Taking a broader interpretation, this Court in ONGC Limited. v. Saw Pipes Limited., held that the legislative intent was not to uphold an award if it is in contravention of provisions of an enactment since it would be contrary to the basic concept of justice. The concept of 'public policy' connotes a matter which concerns public good and public interest. An award which is patently in violation of statutory provisions cannot be held to be in the public interest. Thus, expanding on the scope and expanse of the jurisdiction of the court under Section 34 of the A&C Act, it was held that an award can be set aside if it is contrary to:
(a) fundamental policy of Indian law; or ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 28
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
39. Nevertheless, the decision holds that mere error of fact or law in reaching the conclusion on the disputed .
question will not give jurisdiction to the court to interfere. However, this will depend on three aspects : (a) whether the reference was made in general terms for deciding the contractual dispute, in which case the award can be set aside if the award is based upon erroneous legal position; (b) this proposition will also hold good in case of a reasoned award, which on the face of it is erroneous of on the legal proposition of law and/or its application; and
(c) where a specific question of law is submitted to an arbitrator, erroneous decision on the point of law does rt not make the award bad unless the court is satisfied that arbitrator had proceeded illegally. In the said case, the court set aside the award on the ground that the award had not taken into consideration the terms of the contract before arriving at the conclusion as to whether the party claiming the damages is entitled to the same. Reference was made to the provisions of Sections 73 and 74 of the Contract Act, which relate to liquidated damages, general damages and penalty stipulations. This view had held the field for a long time and was applied in subsequent judgments of this Court in Hindustan Zinc Ltd. v. Friends Coal Carbonisation, Centrotrade Minerals and Metals Inc. v. Hindustan Copper Limited, Delhi Development Authority v. R.S. Sharma and Co., J.G. Engineers (P) Ltd. v. Union of India, and Union of India v. L.S.N. Murthy.
40. In 2006, this Court in McDermott International Inc. despite following the ratio of Saw Pipes Limited, made succinct observations regarding the restrictive role of courts in the post-award interference. In addition to the three grounds introduced in Renusagar Power Co. Limited v. General Electric Co, as noticed above, an additional ground of 'patent illegality' was introduced by Saw Pipes Limited, for the exercise of the court's jurisdiction in setting aside an arbitral award. This Court, in McDermott International Inc., held that patent illegality must be such which goes to the root of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 29 matter. The public policy violation should be so unfair and unreasonable as to shock the conscience of the court. Arbitrator where s/he acts contrary to or beyond the express law of contract or grants relief, such awards fall within the purview of Section 34 of the A&C Act. Further, what would constitute public policy is a matter dependent .
upon the nature of the transaction and the statute.
Pleadings of the party and material brought before the court would be relevant to enable the court to judge what is in public good or public interest, or what would otherwise be injurious to public good and interest at a relevant point. So, this must be distinguished from the public policy of a particular government.
of
41. A similar view was expressed in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran with the clarification that where a term of the contract is capable of two rt interpretations and the view taken by the arbitrator is a plausible one, it cannot be said that the arbitrator travelled outside the jurisdiction of the view taken the arbitrator is against the terms of the contract. The court cannot interfere with the award and substitute its view with the award and interpretation accepted by the arbitrator, the reason being the court does not sit in appeal over the findings and decision of the arbitrator, while deciding an application under Section 34 of the A&C Act. The arbitrator is legitimately entitled to take a view after considering the material before him/her and interpreting the agreement. The judgment should be accepted as final and binding.
42. Subsequently, in ONGC Ltd. v. Western Geco International Ltd., a three-judge Bench of this Court observed that the Court, in Saw Pipes Ltd., did not examine what would constitute a 'fundamental policy of Indian law'. The expression 'fundamental policy of Indian law' in the opinion of this Court includes all fundamental principles providing a basis for the administration of justice and enforcement of law in this country. There were three distinct and fundamental juristic principles which form a part and parcel of the 'fundamental policy of Indian law'. The first and foremost principle is that in every determination by a court or an authority that ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 30 affects the rights of a citizen or leads to civil consequences, the court or authority must adopt a judicial approach. Fidelity to the judicial approach entails that the court or authority should not act in an arbitrary, capricious or whimsical manner. The court or authority should act in a bona fide manner and deal with the subject .
in a fair, reasonable and objective manner. The decision should not be actuated by extraneous considerations. Secondly, the principles of natural justice should be followed. This would include the requirement that the arbitral tribunal must apply its mind to the attending facts and circumstances while taking the view one way or the other. Non-application of mind is a defect that is fatal of to any adjudication. Application of mind is best done by recording reasons in support of the decision. As noticed above, Section 31(3)(a) of the A&C35 states that the rt arbitral award shall state the reasons on which it is based, unless the parties have agreed that no reasons are to be given. Sub-clauses (i) and (iii) to Section 34(2) also refer to different facets of natural justice. In a given case sub- clause to Section 34(2) and sub-clause (ii) to clause (b) to Section 34(2) may equally apply. Lastly, there is the need to ensure that the decision is not perverse or irrational and that no reasonable person would have arrived at the same or be sustained in a court of law. Perversity or irrationality of a decision is tested on the touchstone of Wednesbury's principle of reasonableness36. At the same time, it was cautioned that this Court was not attempting an exhaustive enumeration of what would constitute 'fundamental policy of Indian law', as a straightjacket definition is not possible. If on facts proved before them, the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which on the face of it, is untenable resulting in injustice, the adjudication made by an arbitral tribunal that enjoys considerable latitude and play at the joints in making awards, may be challenged and set aside.
43. The decision of this Court in Associate Builders elaborately examined the question of public policy in the context of Section 34 of the A&C Act, specifically under the head 'fundamental policy of Indian law'. It was firstly held that the principle of judicial ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 31 approach demands a decision to be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would not satisfy the said requirement.
44. Referring to the third principle in Western Geco, it was explained that the decision would be irrational and .
perverse if (a) it is based on no evidence; (b) if the arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or (c) ignores vital evidence in arriving at its decision. The standards prescribed in Excise and Taxation Officer-cum-Assessing Authority v. GopiNath& Sons and Kuldeep Singh v. Commissioner of Police should be applied and relied upon, as good working of tests of perversity. In GopiNath& Sons it has been held that apart from the cases where a finding of fact is arrived at by ignoring or excluding relevant materials or taking into consideration irrelevant material, the finding is rt perverse and infirm in law when it outrageously defies logic as to suffer from vice of irrationality. Kuldeep Singh clarifies that a finding is perverse when it is based on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it. If there is some evidence which can be acted upon and can be relied upon, however compendious it may be, the conclusion should not be treated as perverse. This Court in Associate Builders emphasised that the public policy test to an arbitral award does not give jurisdiction to the court to act as a court of appeal and consequently, errors of fact cannot be corrected. The arbitral tribunal is the ultimate master of quality and quantity of evidence. An award based on little evidence or no evidence, which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Every arbitrator need not necessarily be a person trained in law as a Judge. At times, decisions are taken acting on equity and such decisions can be just and fair and should not be overturned under Section 34 of the A&C Act on the ground that the arbitrator's approach was arbitrary or capricious. Referring to the third ground of public policy, justice or morality, it is observed that these are two different concepts. An award is against justice when it shocks the conscience of the court, as in an example where the claimant has restricted his claim but the arbitral tribunal ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 32 has awarded a higher amount without any reasonable ground of justification. Morality would necessarily cover agreements that are illegal and also those which cannot be enforced given the prevailing mores of the day. Here again, interference would be only if something shocks the court's conscience. Further, 'patent illegality' refers to .
three sub-heads : (a) contravention of the substantive law of India, which must be restricted and limited such that the illegality must go to the root of the matter and should not be of a trivial nature. Reference in this regard was made to clause (a) to Section 28(1) of the A&C Act, which states that the dispute submitted to arbitration under Part I shall be in accordance with the substantive of law for the time being in force. The second sub-head would be when the arbitrator gives no reasons in the award in contravention with Section 31(3) of the A&C Act.
rt The third sub-head deals with contravention of Section 28(3) of the A&C Act which states that the arbitral tribunal shall decide all cases in accordance with the terms of the contract and shall take into account the usage of the trade applicable to the transaction. This last sub-head should be understood with a caveat that the arbitrator has the right to construe and interpret the terms of the contract in a reasonable manner. Such interpretation should not be a ground to set aside the award, as the construction of the terms of the contract is finally for the arbitrator to decide. The award can be only set aside under this sub-head if the arbitrator construes the award in a way that no fair-minded or reasonable person would do."
16. A similar view was taken by the Hon'ble Supreme Court in Hindustan Construction Co. Ltd. v. National Highways Authority of India, 2023 SCC OnLine SC 1063, wherein it was held:
"26. The prevailing view about the standard of scrutiny- not judicial review, of an award, by persons of the disputants' choice being that of their decisions to stand and not interfered with, [save a small area where it is established that such a view is premised on patent ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 33 illegality or their interpretation of the facts or terms, perverse, as to qualify for interference, courts have to necessarily chose the path of least interference, except when absolutely necessary]. By training, inclination and experience, judges tend to adopt a corrective lens; usually, commended for appellate review. However, that .
lens is unavailable when exercising jurisdiction under Section 34 of the Act. Courts cannot, through the process of primary contract interpretation, thus, create pathways to the kind of review which is forbidden under Section
34. So viewed, the Division Bench's approach, of appellate review, twice removed, so to say [under Section 37], and conclusions drawn by it, resulted in displacing the of majority view of the tribunal, and in many cases, the unanimous view, of other tribunals, and substitution of another view. As long as the view adopted by the majority rt was plausible-and this court finds no reason to hold otherwise (because concededly the work was completed and the finished embankment was made of composite, compacted matter, comprising both soil and fly ash), such a substitution was impermissible.
27. For a long time, it is the settled jurisprudence of the courts in the country that awards which contain reasons, especially when they interpret contractual terms, ought not to be interfered with, lightly. The proposition was placed in State of UP v. Allied Constructions:
"[..] It was within his jurisdiction to interpret Clause 47 of the Agreement having regard to the fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and an error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for the arbitrator to determine (see Sudarsan Trading Co. v. The Government of Kerala, (1989) 2 SCC 38: AIR 1989 SC 890). Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 34 satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the. interference therewith would still be not available within the jurisdiction .
of the Court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law"
28. This enunciation has been endorsed in several cases (Ref McDermott International Inc. v. Burn Standard Co. Ltd.). In MSK Projects (I) (JV) Ltd v. State of Rajasthan it was of held that an error in the interpretation of a contract by an arbitrator is "an error within his jurisdiction". The position was spelt out even more clearly in Associate Builders (supra), where the court said that:
rt "[..] if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do."
17. Similarly, it was laid down by the Hon'ble Supreme Court in Larsen Air Conditioning & Refrigeration Co. v. Union of India, 2023 SCC OnLine SC 982, that the courts can interfere with the award if it suffers from patent illegality which goes to the root of the case. It was observed:
"15. The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality, i.e., that "illegality must go to the root of the matter and cannot be of a trivial nature"; and that the tribunal "must decide in accordance with the terms of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 35 contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground" [ref: Associate Builders (supra)]. The other ground would be a denial of natural justice. In appeal, Section 37 of the Act grants narrower scope to the appellate court to review the .
findings in an award, if it has been upheld, or substantially upheld under Section 34. It is important to notice that the old Act contained a provision which enabled the court to modify an award. However, that power has been consciously omitted by Parliament, while enacting the Act of 1996. This means that the Parliamentary intent was to exclude the power to modify of an award, in any manner, to the court. This position has been iterated decisively by this court in Project Director, National Highways No. 45E and 220 National Highways rt Authority of India v. M. Hakeem:
"42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181], [KinnariMullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106], [Dakshin Haryana BijliVitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the "limited remedy" under Section 34 is coterminous with the "limited right", namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996."::: Downloaded on - 20/10/2023 20:36:49 :::CIS 36
18. Dr. Lalit Sharma relied upon the judgment of the Hon'ble Supreme Court in Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd., (2020) 7 SCC 167: (2020) 4 SCC (Civ) .
149: 2020 SCC OnLine SC 466, wherein it was held:
"22. The present case arises out of a domestic award between two Indian entities. The ground of patent illegality is a ground available under the statute for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or, so irrational that no of reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the
19. rt arbitrator is not even a possible view."
It is apparent from these judgments that the scope of interference with the award of the learned Arbitrator is quite narrow. Learned Arbitrator is the master of the facts and the Court does not sit in appeal over the award of the learned Arbitrator. If the learned Arbitrator has taken a possible view, the Court will uphold the same. The Court will only interfere if the learned Arbitrator has reached a conclusion, which no reasonable person would reach based on the material placed before it or if it shocks the conscience of the Court. The Court will not interfere with the award because an alternative view is possible.
20. Even, regarding the construction of the contract, Hon'ble Supreme Court held in Ssangyong Engg. & Construction ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 37 Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213, that a possible view of the contract taken by the Arbitral Tribunal will not invalidate the award. It was observed:
.
"40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in the Associate Builders case [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], namely, that the construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in a manner that no fair-minded of or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with rt matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A)".
21. The present award has to be adjudged on the basis of these guidelines.
22. The dispute between the parties relates to the execution of the permeation grouting work. The claimant contends that it was an additional work and a variation for which it is entitled to the payment, whereas, the respondent contends that it was within the scope of the original work allotted to the claimant.
23. It is undisputed that the work allotted to the claimant was EPC which means Engineering, Procurement and Construction. The claimant prepared a design as per the material supplied by the respondent and the respondent had ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 38 approved the design. The scope of the work as per Clause 1.1 of the General Contract states that the contractor was to prepare a detailed design, necessary execution drawings, as well as, .
calculation. In clause 1.3, it was mentioned that the barrage was located on a stable rocky and comparatively narrow portion of the river. The structure was of reinforcing concrete gravity type and was to be founded on a permeable strata. Clause 1.3.1 of mentioned that a barrage base is proposed on permeable strata of river Sainj. Clause 1.6 states that the contractor shall submit rt the execution drawing 84 days ahead of the construction to the employer for review and approval. The design shall be returned to the contractor within a review period of 28 days marked with approval or with comments for correction. Therefore, it is apparent that both parties proceeded on the basis that the barrage was to be constructed on a permeable strata. The contractor had to prepare the design, which was to be approved by the respondent.
24. The site geology and geotechnical discussion mentions that the design of the barrage was to be suitable for permeable foundations. The 5-millimetre thick sand layer below 18.5 meters may be removed and operated to avoid the piping and liquefaction hazard. Therefore, the contractor was required ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 39 to take care of the liquefaction hazard. The possibility of suffusion was never pointed out to the claimant in the report.
25. The issue of liquefaction and suffusion under barrage .
emerged during the year 2011 after the visit of a team of experts from M/s LII, who apprehended that the foundation stratum may be prone to failure by liquefaction and suffusion. The claimant maintained that the barrage foundation is non-
of suffusive and seepage loss of water is insignificant. The design was approved by rt the respondent. The respondent also mentioned that river-borne material was not prone to liquefaction and regarding the suffusion, the situation was marginally safe. The DAB also held that the contractor had complied with the employer's requirement and fulfilled its primary obligation of providing a safe and suitable design of barrage structure resting on a permeable foundation and the work of permeation grouting was a variation. The minority view was that the design of the barrage was not safe.
26. The report of Dr D.N. Singh, Professor, IIT, Bombay, concluded that the exit gradient requirement was satisfied to check the piping action. The sand-sized particle should have been sieved separately to establish the possibility of suffusion.
Even if one considers suffusion to occur the rigid raft of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 40 barrage will bridge over the micro-cavities formed as the sand was not a continuum stratum. This report falsifies the stand of M/S LII that there was a possibility of suffusion due to the .
presence of sand particles.
27. M/s LII admitted in his letter dated 30.12.2011 that there was no clarity about the issues raised by Design Wing in its note of September 2011, in which, it was stated that sand was of confined to an isolated pocket and no sand layer extends across the barrage foundation. If there is no seepage, there will be no rt suffusion. The Design Wing has also referred to the Manual of Barrages and Weirs on Permeable Foundation Publication No.179 Volume I, New Delhi, 1985.
28. It is an admitted case that sand pockets were found in localized places and there was no continuous stratum of sand.
Therefore, the opinion of Professor D.N. Singh, an Indian expert has to be preferred to the report of M/S LII. Learned Arbitral Tribunal had rightly held that the reliance could not be placed on Burenkova Theory as it was not included in the relevant codes and standards. The consultant-M/s LII adopted some calculations, which were beyond the scope of IS 6966.
29. It is not in dispute that the claimant was required to adhere to IS Code Standard and where the standards were not ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 41 provided, the recourse was to be had to international standards.
In the present case, the BIS standard was available. M/s LII did not state that the design was not as per the Indian Standard .
Codes and trade practices. It relied upon the Burenkova Theory, which is not included in the Bureau of Indian Standards.
Therefore, the claimant could not have been asked to adhere to a standard, which was not provided in the contract.
of
30. A plea was also taken regarding the reduction in the length of the barrage. Dr. Lalit Sharma learned Counsel rt contended that the reduction in length contributed to the possibility of failure of the barrage. He relied upon the opinion of a dissenting member of the DAB regarding this fact and the judgment of the Hon'ble Supreme Court in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657 to submit that the opinion of a dissenting member is also an award. This submission cannot be accepted. It was laid down in Hindustan Construction (supra) that the award of dissenting members cannot be treated as an award of the Tribunal. It was observed:
"29. Before ending the discussion, it would be also necessary to highlight one aspect which is likely to arise in some arbitration proceedings, especially when it involves adjudication by multi-member tribunals. This aspect was highlighted in Russel on Arbitration, where ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 42 the relevance of a dissenting opinion was explained as follows [as quoted in Dakshin Haryana BijliVitran Nigam Ltd. v. Navigant Technologies (P) Ltd (hereafter, "Dakshin Haryana BijliVitran Nigam Ltd")]:
"6-058. Dissenting opinions.--Any member of the .
Tribunal who does not assent to an award need not sign it but may set out his own views of the case, either within the award document or in a separate "dissenting opinion". The arbitrator should consider carefully whether there is a good reason for expressing his dissent, because a dissenting opinion may encourage a challenge to the award.
of This is for the parties' information only and does not form part of the award, but it may be admissible as evidence in relation to the procedural matters in the event of a challenge or may add weight to the rt arguments of a party wishing to appeal against the award.".
30. This court also quoted Gary B. Born's commentary on the International Commercial Arbitration22 opinion:
"Even absent express authorization in national law or applicable institutional rules (or otherwise), the right to provide a dissenting or separate opinion is an appropriate concomitant of the arbitrator's adjudicative function and the Tribunal's related obligation to make a reasoned award. Although there are legal systems where dissenting or separate opinions are either not permitted, or not customary, these domestic rules have little application in the context of party-nominated co- arbitrators, and diverse Tribunals. Indeed, the right of an arbitrator to deliver a dissenting opinion is properly considered as an element of his/her adjudicative mandate, particularly in circumstances where a reasoned award is required. Only clear and explicit prohibition should preclude the making and publication to the parties of a dissenting opinion, which serves an important role in the deliberative process and can provide a valuable ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 43 check on arbitrary or indefensible decision- making. [.] [...] There is nothing objectionable at all about an arbitrator "systematically drawing up a dissenting .
opinion, and insisting that it be communicated to the parties". If an arbitrator believes that the Tribunal is making a seriously wrong decision, which cannot fairly be reconciled with the law and the evidentiary record, then he/she may express that view. There is nothing wrong -- and on the contrary, much that is right -- with such a course of as part of the adjudicatory process in which the Tribunal's conclusion is expressed in a reasoned manner. And, if the arbitrator considers that the award's conclusions require a "systematic"
rt discussion, that is also entirely appropriate; indeed, it is implied in the adjudicative process, and the requirement of a reasoned award."
[...] ... the very concept of a reasoned award by a multi-
member Tribunal permits a statement of different reasons -- if different members of the Tribunal in fact hold different views. This is an essential aspect of the process by which the parties have an opportunity to both, present their case, and hear the reasons for the Tribunal's decision; not hearing the dissent deprives the parties of an important aspect of this process."
31. In Dakshin Haryana Bijli Vitran Nigam Ltd, the court recollected the previous holding in SsangyongEngg. & Construction Co. Ltd. v. NHAI (hereafter, "SsangyongEngg. & Construction Co. Ltd."), wherein the court had set aside the majority award, but issued consequential directions in the peculiar facts of the case:
"In Ssangyong [SsangyongEngg. & Construction Co. Ltd. v. NHAI, (2019) 7 SCR 522], this Court upheld the view taken by the dissenting arbitrator in the exercise of its powers under Article 142 of ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 44 the Constitution, in order to do complete justice between the parties. The reason for doing so is mentioned in para 77 i.e. the considerable delay which would be caused if another arbitration was to be held. This Court exercised its extraordinary power in Ssangyong [SsangyongEngg. & Construction .
Co. Ltd. v. NHAI,] keeping in mind the facts of the case and the object of expeditious resolution of disputes under the Arbitration Act."
32. However, the court did not, in Dakshin Haryana BijliVitran Nigam Ltd. (supra) direct the dissenting opinion to be treated as an award. In the opinion of this court, that of approach is correct, because there appears to be a slight divergence in thinking between Russel and Gary Born. The former, Russel is careful to point out that a dissenting opinion is not per se an award, but "is for the rt parties' information only and does not form part of the award, but it may be admissible as evidence in relation to the procedural matters in the event of a challenge." However, Gary Born does not expressly say that the opinion is not a part of the award. That author yet clarifies that "This is an essential aspect of the process by which the parties have an opportunity to both, present their case, and hear the reasons for the Tribunal's decision; not hearing the dissent deprives the parties of an important aspect of this process."
33. It is, therefore, evident that a dissenting opinion cannot be treated as an award if the majority award is set aside. It might provide useful clues in case there is a procedural issue which becomes critical during the challenge hearings. This court is of the opinion that there is another dimension to the matter. When a majority award is challenged by the aggrieved party, the focus of the court and the aggrieved party is to point out the errors or illegalities in the majority award. The minority award (or dissenting opinion, as the learned authors point out) only embodies the views of the arbitrator disagreeing with the majority. There is no occasion for anyone as the party aggrieved by the majority award, or, more crucially, the party who succeeds in the majority award, to challenge the soundness, plausibility, illegality or ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 45 perversity in the approach or conclusions in the dissenting opinion. That dissenting opinion would not receive the level and standard of scrutiny which the majority award (which is under challenge) is subjected to. Therefore, the so-called conversion of the dissenting opinion, into a tribunal's findings, [in the event a .
majority award is set aside] and elevation of that opinion as an award, would, with respect, be inappropriate and improper.
31. Therefore, the opinion of the dissenting member cannot be treated as an award.
of
32. In the present case, the design was submitted to the respondent. It was based upon the relevant provision of IS 6966 rt stipulated under the contract. The hydraulic behaviour of the barrage was vetted by the Irrigation and Power Research Institute, Amritsar at Pathankot. There were a number of changes in the dimensions of the structure based on the site condition and the negotiations between the parties. It was rightly held by the learned Arbitral Tribunal that once the design was finalized by the respondent, it was not possible for it to contend that the design was faulty and would have led to the failure of the barrage by suffusion.
33. The objector/respondent contended before the learned Arbitral Tribunal, as well as, before this Court that the claimant was required to provide the safe design and a reference was made to the following clauses:
::: Downloaded on - 20/10/2023 20:36:49 :::CIS 46Clause 4.1 (Contract Document II to IV):
"The contractor shall design, execute and complete the works in accordance with the contract, and shall remedy any defects in the works. When completed, the works shall be fit for the purposes for which the .
works are intended as defined in the contract.
The contractor shall provide the Plant and contractor's documents specified in the contract, and all Contractor's personnel, Goods, consumables and other things and services, whether of a temporary or permanent nature, required in and for this design, execution, completion and remedying of of defects.
The works shall include any work which is necessary to satisfy the Employer's Requirements rt or is implied by the Contract, and all works which (although not mentioned in the Contract) are necessary for stability or for the completion, or safe and proper operation, of the Works.
The Contractor shall be responsible for the adequacy, stability and safety of all Site operations, of all methods of construction and of all the works. The Contractor shall, whenever required by the Employer, submit details of the arrangements and methods which the Contractor proposes to adopt for the execution of the Works, No significant alteration to these arrangements and methods shall be made without this having previously, been notified to the Employer".
Clause 4.12 of GCC of the Contract Document II of IV:
" Except as otherwise stated in the contract:
a) The contractor shall be deemed to have obtained all necessary information as to risk, contingencies and other circumstances which may influence or affect the works.
b) By signing the contract, the contractor accepts total responsibility of having foreseen all difficulties and costs of successfully completing the works.::: Downloaded on - 20/10/2023 20:36:49 :::CIS 47
c) The contract price shall not adjust to take account of any unforeseen difficulties or costs.
Clause 5 (5.1) OF Section 8 of the contract document (volume II of IV):
"The Contractor shall be responsible for the safe .
design of the works. For this purpose, the technical standards for the design, the Contractor's documents, the execution and the completed works shall be those published by the Bureau of Indian Standards. Where such standards are not published, equivalent or better International Standards and Practices shall be applicable."
of Contract Clause 5.1 GCC, Document II of IV, (General Design Obligations) read with PCC "The Contractor shall be deemed to have rt scrutinized, prior to the Base Date, the Employer's Requirements (including design criteria and calculations, if any). The Contractor shall be responsible for the design of the Works and for the accuracy of such Employer's Requirements (including design criteria and calculations), except as stated below.
The contractor shall be responsible for the safe design of the Works. The this purpose, the technical standards for the design, the Contractor's Documents, the execution and the completed Works shall be those published by the Bureau of Indian Standards. Where such Standards are not published, equivalent or better International Standards and Practices shall be applicable.
The Employer shall not be responsible for any error, inaccuracy or omission of any kind in the Employer's Requirements as originally included in the Contract and shall not be deemed to have given any representation of accuracy or completeness of any data or information, except as stated below. Any data or information received by the Contractor, from the Employer or otherwise, shall not relieve the Contractor from his responsibility for the design and execution of the Works.
::: Downloaded on - 20/10/2023 20:36:49 :::CIS 48However, the Employer shall be responsible for the correctness of the following portions of the Employer's Requirements and of the following data and information provided by (or on behalf of) the Employer:
.
(a) Portions, data and information which are stated in the Contract as being immutable or the responsibility of the Employer,
(b) Definitions of intended purposes of the Works or any parts thereof,
(c) Criteria for the testing and performance of the completed works, and of
(d) Portions, data and information which cannot be verified by the Contractor, except as rt otherwise stated in the Contract".
34. It was submitted that it was the responsibility of the Contractor to provide a safe design and remedy the defects in the work. Since, M/s LII had found that the design was not safe for suffusion; therefore, the claimant is under an obligation to remedy the defect pointed out by M/s LII. It is true that as per these clauses the Contractor has to design, execute and complete the work and remedy the defects. He is also responsible for the safe design of the work. However, the objector failed to point out any document, in which it was stated that the design was unsafe.
Even the M/s LII Consultant engaged by the respondent stated that the design was marginally safe. It did not say that the design was unsafe. Professor D.N. Singh of IIT Bombay specifically stated that the design was not prone to failure as it would bridge over the microcavities formed by the pockets of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 49 sand. There is no evidence that Professor D.N. Singh is not an expert in his field; therefore, his opinion cannot be ignored by referring to the Burenkova Theory, which is not shown to be part .
of the Indian Standard. The risk of liquefaction pointed out by the respondent was taken care of. Therefore, it cannot be said that the design was defective or was an unsafe design or that the Contractor was under an obligation to make the design safe by of permeation grouting to guard against suffusion. Learned Arbitral Tribunal had correctly interpreted these clauses and it rt cannot be said that the learned Arbitrator had proceeded in violation of the contract agreed between the parties.
35. It is undisputed that as per the contract, the barrage was to be designed on a permeable foundation. The geological reports provided by the respondent did not mention the presence of the sand layer leading to the possible suffusion. The report of Mr. Manoj Kumar only mentioned the liquefaction potential of sand layers and not the possibility of suffusion.
Therefore, it appears that both parties had proceeded on the basis that the barrage was to be constructed on a permeable layer after considering the possibility of liquefaction. No party contemplated the possibility of suffusion. The respondent had also pointed out in the documents that the design was safe as ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 50 per the BIS Code. No document was produced before the learned Arbitral Tribunal and no document was pointed out to this Court, which had suggested the possibility of suffusion before .
the design of the work started.
36. The respondent asked the claimant to carry out the permeation grouting. The claimant stated that it would be treated as an additional item of work not covered within the of scope of the contract. The respondent maintained that the barrage was marginally safe. Ultimately, the claimant carried rt out the permeation grouting. The learned Arbitral Tribunal also held that providing the permeation grouting was not part of the Indian Standards. Nothing was brought to the notice of this Court to show that the permeation grouting is included in the Indian Standard for barrage. Learned Arbitral Tribunal had rightly relied upon the Indian Standard and the report of the Indian expert rather than the Burenkova Theory, the validity of which is yet to be established.
37. Therefore, no fault can be found with the reasoning of the learned Arbitral Tribunal that permeation grouting was an additional work and was not included within the scope of the work. It was a reasonable view, which could have been taken based on the material placed before the learned Arbitral ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 51 Tribunal and this view cannot be substituted in objections under Section 34 of the Arbitration and Conciliation Act.
38. It was submitted that the learned Arbitral Tribunal .
erred in awarding the interest @15% per annum. Learned Arbitral Tribunal noticed that as per the contract data item 14.8, the rate of interest for delayed payment was 8% per annum simple; therefore, the claimant was held entitled to the interest of @8% per annum. It was laid down by the Hon'ble Supreme Court in Indian Railway Construction Co. Ltd. v. National Buildings rt Construction Corpn. Ltd., (2023) 7 SCC 390: 2023 SCC OnLine SC 294, that the Arbitral Tribunal has the power to award interest unless specifically prohibited. It was held:
"25. An identical question came to be considered by this Court in Raveechee [Raveechee& Co. v. Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ) 711]. In the said decision, it is observed and held by this Court that an arbitrator has the power to award interest unless specifically barred from awarding it and the bar must be clear and specific. In the said decision, it is observed and held that the liability to pay interest pendentelite arises because the claimant has been found entitled to the same and had been kept out from those dues due to the pendency of the arbitration i.e. pendentelite.
26. Applying the law laid down by this Court in the aforesaid decision in Raveechee and Co. [Raveechee& Co. v. Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ) 711] to the facts of the case on hand, once it was found that the advance amount was paid for hypothecation of equipment and thereafter when the Arbitral Tribunal awarded the interest on advance for hypothecation of ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 52 equipment, the same was not required to be interfered with by the learned Single Judge in the exercise of the powers under Section 34 of the Arbitration Act and even by the Division Bench of the High Court while exercising the powers under Section 37 of the Arbitration Act.
However, at the same time to award the interest @18% .
can be said to be on the higher side. In the facts and circumstances of the case, if the interest is awarded @ 12% on advance for the hypothecation of equipment, the same can be said to be reasonable interest."
39. In the present case, the contract does not prohibit the of award of the interest. Therefore, no error was committed by the learned Tribunal in awarding the interest.
40. rt It was laid down in Morgan Securities & Credits (P) Ltd.
v. Videocon Industries Ltd., (2023) 1 SCC 602: 2022 SCC OnLine SC 1127, that even if the award does not mention the post-award interest, the claimant is entitled to interest @18% per annum as per Section 31 (7) of Arbitration and Conciliation Act. It was observed:
"24. The issue before us is whether the phrase "unless the award otherwise directs" in Section 31(7)(b) of the Act only provides the arbitrator the discretion to determine the rate of interest or both the rate of interest and the "sum" it must be paid against. At this juncture, it is crucial to note that both clauses (a) and (b) are qualified. While clause (a) is qualified by the arbitration agreement, clause (b) is qualified by the arbitration award. However, the placement of the phrases is crucial to their interpretation. The words, "unless otherwise agreed by the parties" occur at the beginning of clause (a) qualifying the entire provision. However, in clause (b), the words, "unless the award otherwise directs" occur after the words "a sum directed to be paid by an arbitral ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 53 award shall" and before the words "carry interest at the rate of eighteen per cent". Thereby, those words only qualify the rate of post-award interest.
25. Section 31(7)(a) confers a wide discretion upon the arbitrator in regard to the grant of pre-award interest.
.
The arbitrator has the discretion to determine the rate of reasonable interest, the sum on which the interest is to be paid, that is whether on the whole or any part of the principal amount, and the period for which payment of interest is to be made -- whether it should be for the whole or any part of the period between the date on which the cause of action arose and the date of the award. When of a discretion has been conferred on the arbitrator in regard to the grant of pre-award interest, it would be against the grain of statutory interpretation to presuppose that the legislative intent was to reduce the discretionary power of rt the arbitrator for the grant of post-award interest under clause (b). Clause (b) only contemplates a situation where the arbitration award is silent on post-award interest, in which event the award-holder is entitled to a post-award interest of eighteen per cent.
26. The arbitrator has the discretion to grant post-award interest. Clause (b) does not fetter the discretion of the arbitrator to grant post-award interest. It only contemplates a situation in which the discretion is not exercised by the arbitrator. Therefore, the observations in Hyder Consulting [Hyder Consulting (UK) Ltd. v. State of Orissa, (2015) 2 SCC 189 : (2015) 2 SCC (Civ) 38] on the meaning of "sum" will not restrict the discretion of the arbitrator to grant post-award interest. There is nothing in the provision which restricts the discretion of the arbitrator for the grant of post-award interest which the arbitrator otherwise holds inherent to their authority.
27. The purpose of granting post-award interest is to ensure that the award-debtor does not delay the payment of the award. With the proliferation of arbitration, issues involving both high and low financial implications are referred to arbitration. The arbitrator takes note of various factors such as the financial standing of the award-debtor and the circumstances of the parties in dispute before awarding interest. The discretion of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 54 arbitrator can only be restricted by an express provision to that effect. Clause (a) subjects the exercise of discretion by the arbitrator on the grant of pre-award interest to the arbitral award. However, there is no provision in the Act which restricts the exercise of discretion to grant post- award interest by the arbitrator. The arbitrator must .
exercise discretion in good faith, must take into account relevant and not irrelevant considerations, and must act reasonably and rationally taking cognizance of the surrounding circumstances.
28. In view of the discussion above, we summarise our findings below:
of 28.1. The judgment of the two-judge Bench in S.L. Arora [State of Haryana v. S.L. Arora & Co., (2010) 3 SCC 690 : (2010) 1 SCC (Civ) 823] was referred to a three-Judge Bench in Hyder Consulting [Hyder rt Consulting (UK) Ltd. v. State of Orissa, (2015) 2 SCC 189 : (2015) 2 SCC (Civ) 38] on the question of whether post-award interest could be granted on the aggregate of the principal and the pre-award interest arrived at under Section 31(7)(a) of the Act.
28.2. Bobde, J.'s opinion in Hyder Consulting [Hyder Consulting (UK) Ltd. v. State of Orissa, (2015) 2 SCC 189 : (2015) 2 SCC (Civ) 38] held that the arbitrator may grant post-award interest on the aggregate of the principal and the pre-award interest. The opinion did not discuss the issue of whether the arbitrator could use their discretion to award post-award interest on a part of the "sum"
awarded under Section 31(7)(a).
28.3. The phrase "unless the award otherwise directs" in Section 31(7)(b) only qualifies the rate of interest.
28.4. According to Section 31(7)(b), if the arbitrator does not grant post-award interest, the award holder is entitled to post-award interest at eighteen per cent.
28.5. Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest. The arbitrator has the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 55 discretion to award post-award interest on a part of the sum.
28.5. Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest. The arbitrator has the .
discretion to award post-award interest on a part of the sum.
28.6. The arbitrator must exercise the discretionary power to grant post-award interest reasonably and in good faith, taking into account all relevant circumstances.
28.7. By the arbitral award dated 29-4-2013, a of post-award interest of eighteen per cent was awarded on the principal amount in view of the judgment of this Court in S.L. Arora [State of rt Haryana v. S.L. Arora & Co., (2010) 3 SCC 690 : (2010) 1 SCC (Civ) 823]. In view of the above discussion, the arbitrator has the discretion to award post-award interest on a part of the "sum"; the "sum" as interpreted in Hyder Consulting [Hyder Consulting (UK) Ltd. v. State of Orissa, (2015) 2 SCC 189 : (2015) 2 SCC (Civ) 38]. Thus, the award of the arbitrator granting post-award interest on the principal amount does not suffer from an error apparent. "
41. Therefore, even in the absence of the mentioning of interest in the award, the claimant is entitled to 18% interest, and the learned Arbitrator cannot be faulted for awarding interest @15% per annum for the post-award interest.
42. It was submitted that the award does not contain adequate reasons. This plea cannot be accepted. It was laid down by the Hon'ble Supreme Court of India in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1: 2019 SCC OnLine SC 1656 that the mandate under Section 31(3) of the Arbitration Act ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 56 is to have reasons which are intelligible and adequate and can be implied from a fair reading of the award by the Courts. The provision does not require an elaborate judgment to be passed .
by the learned Arbitrator having regard to the speedy resolution of the dispute. It was observed at page 13:
"26. Having established the basic jurisprudence behind Section 34 of the Arbitration Act, we must focus on the analysis of the case. The primary contention of the of learned counsel appearing on behalf of the appellant is that the award by the learned Tribunal was perverse for want of reasons. The necessity of providing reasons has been provided under Section 31 of the Arbitration Act, rt which reads as under:
"31. Form and contents of arbitral award.--(1)-(2) * * * (3) The arbitral award shall state the reasons upon which it is based, unless--
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under Section 30."
(emphasis supplied)
27. Under the Uncitral Model Law the aforesaid provision is provided as under:
"31. (2) The award shall state the reasons upon which it is based unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under Article 30."
28. Similar to the position under the Model Law, India also adopts a default rule to provide for reasons unless the parties agree otherwise. As with most countries like England, America and Model Law, Indian law recognises enforcement of the reasonless award if it has been so agreed between the parties.
::: Downloaded on - 20/10/2023 20:36:49 :::CIS 5729. There is no gainsaying that arbitration proceedings are not per se comparable to judicial proceedings before the Court. A party under Indian Arbitration Law can opt for arbitration before any person, even those who do not have prior legal experience as well. In this regard, we need to understand that the intention of the legislature to .
provide for a default rule, should be given rational meaning in light of commercial wisdom inherent in the choice of arbitration.
30. A five-judge Constitution Bench of this Court in Raipur Development Authority v. Chokhamal Contractors [Raipur Development Authority v. Chokhamal Contractors, (1989) 2 of SCC 721: AIR 1990 SC 1426], considered the scope of Section 30 of the Arbitration Act, 1940 and held as under:
(SCC p. 736, para 19) "19. It is now well settled that an award can neither be rt remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons. The arbitrator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission he is required to give such reasons and if the arbitrator or umpire chooses to give reasons in support of his decision it is open to the court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons. The arbitrator or umpire shall have to give reasons where the court has directed in any order such as the one made under Section 20 or Section 21 or Section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so."
31. A three-judge Bench of this Court in another case of S. Harcharan Singh v. Union of India [S. Harcharan Singh v. Union of India, (1990) 4 SCC 647], reiterated its earlier view that the arbitrator's adjudication is generally considered binding between the parties for he is a Tribunal selected by the parties and the power of the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 58 Court to set aside the award is restricted to cases set out in Section 30 of the Arbitration Act, 1940.
32. However, the ratio of the Chokhamal case [Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721: AIR 1990 SC 1426] has not found favour of the .
legislature, and accordingly Section 31(3) has been enacted in the Arbitration Act. This Court in Som Datt Builders Ltd. v. State of Kerala [Som Datt Builders Ltd. v. State of Kerala, (2009) 10 SCC 259 : (2009) 4 SCC (Civ) 153 : (2009) 4 Arb LR 13], a Division Bench of this Court has indicated that passing of a reasoned award is not an empty formulation under the Arbitration Act.
of
33. It may be relevant to note Russell on Arbitration, 23rd Edn. (2007), wherein he notes that:
"If the Court can deduce from the award and the rt materials before it, which may include extracts from evidence and the transcript of the hearing, the thrust of the tribunal's reasoning then no irregularity will be found....Equally, the court should bear in mind that when considering awards produced by non-lawyer arbitrators, the court should look at the substance of such findings, rather than their form, and that one should approach a reading of the award in a fair, and not in an unduly literal way."
(emphasis supplied)
34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of the dispute.
35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 59 grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent to providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has .
to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions of reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards rt with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily, unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
36. At this juncture it must be noted that the legislative intention of providing Section 34(4) in the Arbitration Act was to make the award enforceable, after giving an opportunity to the Tribunal to undo the curable defects.
This provision cannot be brushed aside and the High Court could not have proceeded further to determine the issue on merits.
37. In case of absence of reasoning the utility has been provided under Section 34(4) of the Arbitration Act to cure such defects. When there is complete perversity in the reasoning then only it can be challenged under the provisions of Section 34 of the Arbitration Act. The power vested under Section 34(4) of the Arbitration Act to cure defects can be utilised in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid curable defects under Section 34 of the Arbitration Act. However, ::: Downloaded on - 20/10/2023 20:36:49 :::CIS 60 in this case, such remand to the Tribunal would not be beneficial as this case has taken more than 25 years for its adjudication. It is in this state of affairs that we lament that the purpose of arbitration as an effective and expeditious forum itself stands effaced.
.
43. In the present case, the learned Arbitral Tribunal has discussed each of the contentions in respect of each of the points formulated by the learned Tribunal and has recorded its own findings; therefore, it cannot be said that the learned Arbitral of Tribunal has not given adequate reasons in support of its award.
44. No other point was urged.
rt Final Order:
45. In view of the above, the plea that the award passed by the learned Arbitral Tribunal suffers from patent illegality or is contrary to the Public Policy of India or in violation of the Contract entered between the parties is not acceptable. Hence, the present objection petition fails and the same is dismissed.
Pending miscellaneous applications, if any, also stand disposed of.
(Rakesh Kainthla) Judge 19th , October, 2023 (Saurav Pathania) ::: Downloaded on - 20/10/2023 20:36:49 :::CIS